ABA Banking Journal - June 2012 - (Page 4)
ABA ChAirmAn’s view | by kell kelly
Adding value to bank supervision
Bank exams too often are failing their purpose to keep banking strong and banks focused on serving customers. Too many banks are worse off as a result of their exams. A recent ABA-sponsored study— “Value-Added Bank Supervision: A Framework for Safely Fostering Economic Growth”—is our latest initiative to help restore exams to what they should be. Dr. Robert Litan of the Kauffman Foundation and the Brookings Institution, and former Comptroller of the Currency Jerry Hawke conducted the study. They interviewed 15 bank executives, representing a broad range of charters, asset sizes, and business models. They tested their ideas against a survey of executives from more than 90 ABA-member banks. Here, in brief, are eight recommendations Litan and Hawke developed to improve the exam process, so banks can get back to the business of promoting economic growth. u Customized supervision. Examiners should customize exams to fit a bank’s business model, geography, charter, size, and borrower record. u Focus on the “big picture.” The overall approach should be riskbased. It should focus on things that really matter, rather than “gotcha” exercises, which focus on technicalities and minor issues that have little bearing on safety and soundness. u Clarity in capital requirements. Banks need to know their real capital requirements. The need for ever-higher capital levels would be reduced with a more effective supervisory and examination system.
u Stress testing. Regulators should consider giving banks a stress test option in place of a loan-by-loan classification of performing loans. u Risk management of loan losses. Examiners should give more weight to appropriate risk management practices in deciding whether to classify loans. u Experienced examiners. Banks should have assurance that examiner teams are led by senior examiners and are balanced in their experience. u Cooperation with state bank examiners. For state-chartered banks, examiners at state and federal levels should redouble efforts to cooperate and recognize each other’s areas of expertise. u Self-review by regulators. Federal regulators may want to assess whether their examiners in the field believe the examination process has changed over time, and, if so, how. Meanwhile, state bankers associations’ Regulatory Feedback Initiative, which enables bankers to provide anonymous exam feedback to policymakers, approached 1,200 surveys and continues to grow. Survey data suggest uneven exam quality, with many banks reporting the exams failed to improve their institutions’ safety and soundness. The surveys provide strong evidence for the ability to appeal exam results— one of the goals of the Financial Institutions Examination Fairness and Reform Act, which ABA supports. Bankers can talk more about exam issues October 14-16 at ABA’s Annual Convention and Business Expo. I look forward to seeing you there. n
“Improving the exam process will help banks get back to the business of promoting economic growth” — Albert C. “Kell” Kelly, Jr., President and CEO, SpiritBank, Bristow, Okla.
| ABA BANKING JOURNAL | june 2012
Table of Contents for the Digital Edition of ABA Banking Journal - June 2012
ABA Banking Journal - June 2012
ABA Community Banking: A purpose-built bank
Pass the Aspirin
Science of the complaint
Top-performing community banks
ABA Banking Journal - June 2012